DIVISION

[ GR No. L-39641, Feb 28, 1983 ]

METROPOL FINANCING v. SAMBOK MOTORS COMPANY +

DECISION

205 Phil. 758

DE CASTRO, J.:
The former Court of Appeals, by its resolution dated October 16, 1974
certified this case to this Court the issue raised therein being one purely of
law.
On April 15, 1969 Dr. Javier Villaruel executed a promissory note in favor of
Ng Sambok Sons Motors Co., Ltd., in the amount of P15,939.00 payable in
twelve (12) equal monthly installments, beginning May 18, 1969, with
interest at the rate of one percent per month. It is further provided that in
case on non-payment of any of the installments, the total principal sum
then remaining unpaid shall become due and payable with an additional
interest equal to twenty-five percent of the total amount due.
On the same date, Sambok Motors Company (hereinafter referred to as
Sambok), a sister company of Ng Sambok Sons Motors Co., Ltd., and under
the same management as the former, negotiated and indorsed the note in
favor of plaintiff Metropol Financing & Investment Corporation with the
following indorsement:
"Pay to the order of Metropol Bacolod Financing & Investment Corporation
with recourse. Notice of Demand; Dishonor; Protest; and Presentment are
hereby waived.
SAMBOK MOTORS CO. (BACOLOD)
By:
RODOLFO G. NONILLO
Asst. General Manager"
The maker, Dr. Villaruel defaulted in the payment of his installments when
they became due, so on October 30, 1969 plaintiff formally presented the
promissory note for payment to the maker. Dr. Villaruel failed to pay the
promissory note as demanded, hence plaintiff notified Sambok as indorsee
of said note of the fact that the same has been dishonored and demanded
payment.
Sambok failed to pay, so on November 26, 1969 plaintiff filed a complaint
for collection of a sum of money before the Court of First Instance of Iloilo,
Branch I. Sambok did not deny its liability but contended that it could not
be obliged to pay until after its co-defendant Dr. Villaruel, has been
declared insolvent.
During the pendency of the case in the trial court, defendant Dr. Villaruel
died, hence, on October 24, 1972 the lower court, on motion, dismissed the
case against Dr. Villaruel pursuant to Section 21, Rule 3 of the Rules of
Court.[1]
On plaintiff's motion for summary judgment, the trial court rendered its
decision dated September 12, 1973, the dispositive portion of which reads
as follows:
"WHEREFORE, judgment is rendered:
"(a) Ordering Sambok Motors Company to pay to the plaintiff the sum of
P15,939.00 plus the legal rate of interest from October 30, 1969;
"(b) Ordering same defendant to pay to plaintiff the sum equivalent to 25%
of P15,939.00 plus interest thereon until fully paid; and
"(c) To pay the cost of suit."
Not satisfied with the decision, the present appeal was instituted, appellant
Sambok raising a lone assignment of error as follows:
"The trial court erred in not dismissing the complaint by finding defendant-
appellant Sambok Motors Company as assignor and a qualified indorsee of
the subject promissory note and in not holding it as only secondarily liable
thereof."
Appellant Sambok argues that by adding the words "with recourse" in the
indorsement of the note, it becomes a qualified indorser; that being a
qualified indorser, it does not warrant that if said note is dishonored by the
maker on presentment, it will pay the amount to the holder; that it only
warrants the following pursuant to Section 65 of the Negotiable
Instruments Law: (a) that the instrument is genuine and in all respects
what it purports to be; (b) that he has a good title to it; (c) that all prior
parties had capacity to contract; (d) that he has no knowledge of any fact
which would impair the validity of the instrument or render it valueless.
The appeal is without merit.
A qualified indorsement constitutes the indorser a mere assignor of the title
to the instrument. It may be made by adding to the indorser's signature the
words "without recourse" or any words of similar import.[2] Such an
indorsement relieves the indorser of the general obligation to pay if the
instrument is dishonored but not of the liability arising from warranties on
the instrument as provided in Section 65 of the Negotiable, Instruments
Law already mentioned herein. However, appellant Sambok indorsed the
note "with recourse" and even waived the notice of demand, dishonor,
protest and presentment.
"Recourse" means resort to a person who is secondarily liable after the
default of the person who is primarily liable.[3] Appellant, by indorsing the
note "with recourse" does not make itself a qualified indorser but a general
indorser who is secondarily liable, because by such indorsement, it agreed
that if Dr. Villaruel fails to pay the note, plaintiff-appellee can go after said
appellant. The effect of such indorsement is that the note was indorsed
without qualification. A person who indorses without qualification engages
that on due presentment, the note shall be accepted or paid, or both as the
case may be, and that if it be dishonored, he will pay the amount thereof to
the holder.[4] Appellant Sambok's intention of indorsing the note without
qualification is made even more apparent by the fact that the notice of
demand, dishonor, protest and presentment were all waived. The words
added by said appellant do not limit his liability, but rather confirm his
obligation as a general indorser.
Lastly, the lower court did not err in not declaring appellant as only
secondarily liable because after an instrument is dishonored by non-
payment, the person secondarily liable thereon ceases to be such and
becomes a principal debtor.[5] His liability becomes the same as that of the
original obligor.[6] Consequently, the holder need not even proceed against
the maker before suing the indorser.
WHEREFORE, the decision of the lower court is hereby affirmed. No
costs.
SO ORDERED.
Makasiar (Chairman), Concepcion Jr., Guerrero and Escolin, JJ., concur.
Abad Santos, J., I concur and wish to add the observation that the appeal
could have been treated as a petition for review under R.A. 5440 and
dismissed by minute resolution.
Aquino, J., is on leave.

Sec. 21. Where claim does not survive - When the action is for recovery of
[1]

money, debt or interest thereon, and the defendant dies before final
judgment in the Court of First Instance, it shall be dismissed to be
prosecuted in the manner especially provided in these rules.

[2] Section 38, The Negotiable Instruments Law.

Ogden, The Law of Negotiable Instruments, p. 200 citing Industrial Bank
[3]

and Trust Company vs. Hesselberg, 195 S. W. (2d) 470.

[4] Ang Tiong vs. Ting, 22 SCRA 715.
[5] Pittsburg Westmoreland Coal, Co. vs. Kerr, 115 N.E.
[6] American Bank vs. Macondray & Co., 4 Phil. 695.